PBF Energy Inc. — Q1 2017 Form 10-Q
Business context and period. This unaudited filing covers the three months ended March 31, 2017, compared with Q1 2016. PBF operates five U.S. refineries with combined throughput capacity of approximately 900,000 barrels per day and reports Refining and Logistics segments. Results include the Torrance refinery, acquired in July 2016, for the first time in a comparable first-quarter comparison; Q1 2016 did not include Torrance.
Financial performance and position
| Metric | Q1 2017 | Q1 2016 / prior date |
|---|---|---|
| Revenue | $4.754 billion | $2.800 billion |
| Operating income (loss) | $0.7 million | $(5.4) million |
| Consolidated net income (loss) | $(20.0) million | $(23.3) million |
| Net loss attributable to PBF Energy stockholders | $(31.1) million; $(0.29) per diluted share | $(29.4) million; $(0.30) per diluted share |
| Cash from operations | $(165.4) million | $(20.6) million |
| Cash and cash equivalents | $306.1 million | $746.3 million at Dec. 31, 2016 |
| Working capital | $1.125 billion | $1.351 billion at Dec. 31, 2016 |
| Long-term debt, net of financing costs | $2.112 billion | $2.109 billion at Dec. 31, 2016 |
| Total assets / total liabilities | $7.512 billion / $5.000 billion | $7.622 billion / $5.051 billion at Dec. 31, 2016 |
Margins and operations. GAAP gross margin was $66.9 million, or $1.01 per barrel of throughput, versus $38.9 million, or $0.66 per barrel. Non-GAAP gross refining margin was $498.4 million ($7.51 per barrel), versus $354.2 million ($5.99 per barrel); excluding inventory valuation adjustments, it was $514.5 million ($7.75 per barrel), versus $295.1 million ($4.99 per barrel). Throughput averaged 738,000 barrels per day versus 650,100. Refinery operating expense rose to $6.58 per barrel from $5.01.
Liquidity and capital. Management reported total liquidity of approximately $1.207 billion, including cash and estimated availability under the Revolving Loan; PBFX separately had $167.2 million of borrowing capacity. Q1 investing cash outflow was $189.0 million, including $109.7 million of capital expenditures and $64.4 million of turnaround costs. Financing cash outflow was $85.8 million, including $32.9 million of dividends, distributions, and $39.7 million repayment of the PBFX Term Loan. The company drew and repaid $200 million on its revolver during the quarter.
Material changes versus the prior comparable period
- Revenue increased 69.8%, reflecting higher hydrocarbon prices, greater throughput overall, and inclusion of Torrance; revenue per barrel rose 49.6%.
- Management cited improved crack spreads in most regions, favorable crude differentials, lower RFS compliance costs for legacy refineries, and Torrance contributions as positive factors. Throughput was affected by unplanned Toledo downtime and planned Chalmette downtime.
- Q1 2017 included a $16.0 million noncash lower-of-cost-or-market inventory charge; Q1 2016 included a $59.1 million benefit. These substantially affect comparisons of reported margins and earnings.
- Operating cash use increased to $165.4 million, with working-capital changes using cash, particularly inventory purchases and timing of payables and accrued expenses. Cash declined by $440.2 million during the quarter.
- Refining operating expenses increased in part because of Torrance, which accounted for approximately $127.5 million of Q1 2017 operating expenses. The acquisition also increased G&A, depreciation, and capital needs.
Outlook, risks, contingencies, and unusual items
- Management expected 2017 net capital expenditures of approximately $575–$600 million for PBF Energy and $110–$120 million for PBFX, including refinery turnarounds, facility improvements, and Tier 3 work. These are estimates, not earnings guidance.
- Management stated that cash flows and available capital resources were expected to cover the next 12 months’ capital, working-capital, dividend, debt-service, and tax receivable agreement needs, while emphasizing sensitivity to petroleum markets and other factors. The company reported compliance with debt covenants at quarter-end.
- The J. Aron inventory intermediation agreements were scheduled to expire July 1, 2017 and had not been renewed as of the filing. If no extension or replacement arrangement is reached, PBF would need to repurchase covered inventory; the filing identifies liquidity and inventory-funding consequences. J. Aron-owned inventory in refinery tanks had a LIFO value of $351.9 million at March 31.
- The company had a $611.4 million tax receivable agreement liability. Estimated payments were approximately $39.6–$60.0 million annually over the next five years, declining thereafter; the company estimated accelerated payments of about $541.9 million if triggered immediately under stated assumptions.
- Environmental and regulatory exposure includes $140.4 million of assumed Torrance remediation liabilities and ongoing notices and proceedings. Several disclosed potential penalties were considered immaterial by management, but outcomes in some matters remain uncertain. The company also disclosed a Chalmette class-action matter whose ultimate impact could be material depending on class size and claims.
- RIN prices and availability, California emissions requirements, commodity-price volatility, refinery disruptions, counterparty performance, and substantial indebtedness are material risks. Management said it generally expected to recover most Torrance AB 32 compliance costs from customers, but unfavorable regulatory changes or inability to recover costs could be adverse.
- After quarter-end, PBF announced a $0.30 per-share dividend payable May 31, 2017. PBFX announced a $0.46 per-unit distribution payable the same date.
Most important facts for investors to verify
- Whether PBF renewed or replaced the J. Aron agreements before their July 1, 2017 expiration, and the cash required to repurchase covered inventory if not.
- How Q1 working-capital demands and planned 2017 refinery turnarounds affect liquidity, operating cash flow, and capital spending.
- Whether refinery margins and throughput remain sufficient to offset higher operating costs, and how Torrance performs relative to acquisition assumptions.
- Developments in RIN costs and availability, environmental liabilities and proceedings, and the Torrance purchase-price/fair-value assessment.
- The sustainability of dividends and PBFX distributions alongside debt service, capital requirements, and tax receivable agreement payments.